Prepare for flotation frenzy, part two

Are flotations back in fashion? Google, the internet search engine, has grabbed the headlines with its $2.7 billion (£1.5bn) plan to auction some of its shares, but on this side of the Atlantic a large number of companies are dusting off their flotation plans: Saga, the travel company for the elderly; fund manager Foreign & Colonial; Irish food group C&C; Premier Foods, whose brands range from Ambrosia creamed rice to Sun-Pat peanut butter; and Umbro, the sports business, are among those on their way to the stock market.

Oliver Hemsley, chief executive of Numis Securities, one of the leading advisers on IPOs - as flotations are now described - says he has heard that as many as 50 are being prepared in London.

That makes the list longer than it has been since the peak of the bull market, when investors were happy to chase practically any new issue, particularly if it was promising some new technology angle. Many ended in disaster, including Baltimore Technologies, which briefly reached the FTSE 100 but is now a shell company fighting for its existence, not to mention the host of internet incubators and technology funds that are now all but worthless.

Paradoxically, technology companies such as Google, are once again in vogue. 'There are lots of good-quality companies using the internet which are growing like crazy,' says Hemsley, and he would expect many more new issues from this area. 'Will they all get done? We will have to wait and see.'

Certainly, the jitters in the stock market over US interest rates and Iraq during the last few days will not have helped sentiment and some experts say there are signs that investors' appetite for new issues is starting to get sated. When the IPO market first opened again last year, companies and their advisers had to keep offer prices low to tempt risk-averse investors. Now there are signs that they are becoming more aggressive - leaving one or two of the recent floats, such as Trading Sports and NETeller, trading below their offer prices.

Paul Kavanagh, of stockbroker Killick & Co, closely monitors new issues, says: 'The environment is becoming a bit more difficult for new issues. There are some heated discussions about pricing (of the shares being issued) and some companies will not get the value they thought they would. I think we will see the odd flotation pulled.'

John Hatherly, head of global analysis at M&G, adds that investors have learnt the lessons of the technology bubble and are asking more probing questions of managers. While M&G did participate in the recent floats of Pinewood Studios and Cambridge Silicon Radio, it has turned many down.

And Hatherly questions whether companies such as Halfords or Premier Brands, which are being taken public again after being acquired from public companies by venture capitalists, will have changed enough under their new owners to make them attractive 'or are institutions just being used by private equity firms as a way of extracting value for themselves'.

The busiest IPO market this year has been Aim, aimed at smaller, growth companies. In the four months to April, 77 companies raised more than £1.1 billion - more than half the £2.1bn raised in the whole of last year. Philip Secrett, a corporate finance partner at Grant Thornton, said some larger companies were now choosing Aim, attracted by the tax benefits and the flexibility that the lighter regulation gives to growth companies. But he thinks the relatively small number of brokers specialising in Aim stocks could restrict the number of companies able to come to the market.

Few IPOs are marketed directly at private investors; instead you would have to apply through a stockbroker. Indeed, unless you are already a substantial investor, it is too risky to dabble in new issues - most have short track records and it will be hard for an individual to gather enough information about its business, prospects and management to judge whether investment will be worthwhile.

Instead, you should perhaps choose a small companies fund, which will consider most new issues, such as Isis's Aim growth fund or the small company funds offered by firms such as Gartmore, Framlington or M&G.